Turkish central bank holds interest rates steady at 50%

The Central Bank of the Republic of Türkiye (CBRT) has announced its anticipated interest rate decision for the month of June, maintaining the policy rate unchanged at 50% for the third consecutive month.

The Monetary Policy Committee has opted to keep the one-week repo auction rate, which serves as the policy rate, steady at 50%.

CBRT

4,150 basis point increase in 2023

Since June 2023, the Central Bank has implemented a total increase of 4,150 basis points in interest rates. Last year, in June, the interest rate was at 8.5%. Since then, it has risen:

• June 2023: 8.5% to 15% (an increase of 650 basis points)
• July 2023: 15% to 17.5% (an increase of 250 basis points)
• August 2023: 17.5% to 25% (an increase of 750 basis points)
• September 2023: 25% to 30% (an increase of 500 basis points)
• October 2023: 30% to 35% (an increase of 500 basis points)
• November 2023: 35% to 40% (an increase of 500 basis points)
• December 2023: 40% to 42.50% (an increase of 250 basis points)
• January 2024: 42.50% to 45% (an increase of 250 basis points)
• March 2024: 45% to 50% (an increase of 500 basis points)

“In May, there was a temporary halt in the downward trend of monthly inflation’s core indicators. Recent data indicates a slowdown in domestic demand, albeit still at inflationary levels. Persistent high trends in service inflation, rigidity in inflation expectations, geopolitical risks and food prices continue to exert inflationary pressures. The Committee remains vigilant in monitoring the alignment of inflation expectations and pricing behaviors with our forecasts,” CBRT said.

Disinflation expected in the second half of the year

The Committee closely monitors the impacts of monetary tightening on loans and domestic demand. While maintaining the policy rate unchanged, considering the delayed effects of monetary tightening, the Committee has reiterated its cautious stance against upward inflation risks.

A tight monetary policy stance will be maintained until there is a clear and sustained decrease in the core trend of monthly inflation and inflation expectations approach the projected range. In the event of a significant and sustained deterioration in inflation, the monetary policy stance will be further tightened.

The consistent stance in monetary policy, through balanced domestic demand, real appreciation of the Turkish lira, and improved inflation expectations, will reduce the core trend of monthly inflation and achieve disinflation in the second half of the year.

Inflation target set at 5%

In case of unexpected developments in credit and deposit markets, the monetary transmission mechanism will be supported with additional macro-prudential measures. Liquidity developments are closely monitored. Sterilization tools will be diversified and effectively utilized as needed.

Considering the delayed effects of monetary tightening, the Committee will determine monetary and financial conditions aimed at reducing the core trend of inflation and achieving the 5% inflation target in the medium term.

Transparency message

Indicators for inflation and its core trend will be closely monitored, and the Committee will decisively utilize all available tools in pursuit of its primary goal of price stability. Decisions will be made within a predictable, data-driven, and transparent framework.

The summary of the Monetary Policy Committee Meeting will be published within five business days.